Litigation against appraisers by disappointed investors, parties to
commercial transactions, and representatives of failed financial
institutions appears to be increasing. [1] Such litigation may occur
when the value of a commercial property decreases, or when it can be
argued that a loan secured by real estate in the past was based on what
appears to be an optimistic valuation. Plaintiffs increasingly hold
appraisers accountable for these losses in addition to the other
professionals involved. [2]

Despite the complexity of the appraisal process, many claimants
still regard a lawsuit against an appraiser as a self-evident claim.
When the appraised value of a property is indisputably less than it was
when originally appraised, plaintiffs generally contend that such a
property was overvalued as a result of material omitted from or
improperly considered in the appraisal.

Many plaintiffs are unaware of the need for expert testimony to
establish claims against appraisers. An appraiser-defendant and his or
her counsel should realize that claims against an appraiser can be
disposed of or narrowed considerably when plaintiffs are unwilling or
unable to provide unaware of the need to obtain expert testimony to
support their claims.

THE REQUIREMENT OF

EXPERT TESTIMONY

Expert testimony is required to support claims against
professionals unless the alleged negligence is so simple and clear that
a trier of fact would have no difficulty in ascertaining the applicable
standard of care.(3) In most cases, however, the alleged negligence is
not a matter of common knowledge and the trier of fact (whether a jury
or a judge) thus cannot determine professional negligence without the
assistance of experts. To properly present such testimony, a plaintiff
should at least be able to establish two things; 1) that the alleged
acts or omissions did not meet the prevailing community-wide standard of
appraisal practice at the time the alleged negligence occurred,(4) and
2) that the alleged negligence contributed to a deficient valuation of
the property.(5) Without such testimony, a trier of fact can only
speculate whether an erroneous valuation occurred.

PRETRIAL USE OF

EXPERTS

An appraiser faced with litigation is almost always accused of
breach of contract, negligence, and perhaps negligent
misrepresentation.(6) Each claim's core assertion is that the
appraiser negligently performed the appraisal and as a result either
overvalued or undervalued the property in question. To prevail a
plaintiff will almost certainly be required to prove both allegations
with the use of expert testimony.

If a plaintiff has not retained an expert to support a claim, the
claim can be reduced or eliminated before the trial. If a complaint
against an appraiser is vague and only the most elementary allegations
of negligence are made, it is likely that an expert has not been
consulted. Such a vaguely worded complaint frequently is made when
plaintiffs are investors who have been disappointed by a subsequent
decline in overall market values and claim that an appraiser overvalued
the property involved.(7) Often, such investors retain a lawyer but
give little thought to retaining an appraiser. Additional clues may
appear during pretrial discovery, when the appraiser's attorney
seeks to elicit from the plaintiff a written description of the reasons
the plaintiff contends that the appraisal was negligently performed.(8)
When these reasons are superficial, convoluted, or elementary, it is
almost certain that the plaintiff has failed to retain an appraiser to
assist in prosecution of the claim. In such cases, the appraiser's
lawyer should file an appropriate motion generally known as a
"motion for summary judgment and/or for summary adjudication of
issues."(9)

When possible, it is preferable to ask an independent reviewing
appraiser to provide expert assistance. An appriaser's errors and
omissions insurer will almost always be willing to underwrite the cost
of such an independent expert. An independent opinion not only will
facilitate an early evaluation of the case, but will increase chances of
an early motion to dismiss as well.

USING AN EXPERT TO

DISPUTE THE CLAIM

A motion can be based on the appraiser-defendant's own
declaration or on the declaration of an appraiser independently
retained. This declaration is made under oath, and should include the
information that the appraiser has reviewed the appraisal in question,
conducted necessary investigation and research, and that it is the
reviewing appraiser's opinion that the appraisal in question was
performed in accordance with all appropriate standards. More
preferably, the reviewing appraiser can avoid addressing the alleged
deficiencies and simply state that the valuation reached was within the
range of valuations that an appraiser would have reached at the time the
original appraisal was performed. It is seldom necessary or even
desirable that the reviewing appraiser attempt to validate the exact
valuation provided by the original appraiser. Generally, the opinion of
a reviewing appraiser that the questioned valuation falls within a
reasonable range for the time at which it was conducted should be
sufficient.

A plaintiff's counsel must oppose such a motion.(10)
According to statutes that govern pretrial motions in most states, it is
not sufficient that a plaintiff merely repeat the allegations of the
complaint or refer to the possibility that an expert opinion will be
offered at trial.(11) The plaintiff must produce evidence in opposition
to the motion so that the court can determine whether the case should
proceed to trial. Further, the plaintiff's counsel cannot oppose
the motion by referring to the wrongdoing of other defendants or
reciting a litany of the deficiencies believed to constitute the
appraiser's negligence. Except in rare situations in which the
appraiser's negligence is so obvious that no expert testimony will
be required, the plaintiff's failure to counter with his or her own
expert testimony will cause the court to dismiss the case. The absence
of expert testimony to establish negligence or damages indicates that a
plaintiff has no claim against an appraiser.

PROVIDING THAT PLAINTIFF

CANNOT PROVE

PROFESSIONAL

NEGLIGENCE

It may be possible to seek dismissal of the claim without offering
expert testimony in support of the motion to dismiss. In federal courts
and some state courts, such a motion can be made by establishing that
the plaintiff has no proof in support of one or more elements of the
claim.(12) In such case, establishing that the plaintiff has no expert
testimony to prove negligent or defective performance of an appraisal is
generally sufficient to dismiss the claim. Such a motion may be based
simply on an admission made by the plaintiff or the plaintiff's
lawyer that no expert has yet been retained to verify the alleged
negligence of the appraiser-defendant.

In a relatively recent case filed against an appraiser by the
Federal Deposit Insurance Corporation (FDIC) and the Resolution Trust
Corporation (RTC), (13) the appraiser was sued for "grossly
overstating" the value of six apartment properties between 1981 and
1983. (14)

The properties were located in the then economically robust regions
of Dallas, Houston, and Tyler, Texas, as well as in Shreveport,
Louisiana. At the instructions of the client, the appraiser elected not
to obtain certain data. Unfortunately, the appraiser did not confirm
these instructions in writing. The FDIC claimed the appraiser was
liable for millions of dollars in promissory note assumed when the
properties were purchased. In response to pretrial discovery requests,
the FDIC provided a lengthy list of alleged deficiencies in each of the
appraisals. Investigation eventually revealed four of the projects were
purchased before the appraisals had been submitted. An order was
requested from the court to establish that the appraiser had no
liability for the acquisition costs of the four properties, which
constituted several million dollars in cash and assumed obligations.
The FDIC opposed the motion, contending that even if the appraisals had
not been submitted prior to the acquisition date, the appraiser had
provided the subsidiary with certain market studies for the projects on
which the acquisition might have been based.

The FDIC maintained that the deficiencies in the appraisals and the
market studies were so obvious that negligence was "evident"
on the face of the market studies. (15) The FDIC also maintained that
it was not required to produce proof of the appraiser's negligence
at a pretrial hearing, but could reserve that matter for proof at trial.
The FDIC's lawyers asserted that it was reasonable to infer that
the appraisals were performed negligently because they contained a
prediction of rental increases of 8% to 12% without any supporting data
and that the defendant failed to perform absorption studies. (16)

As the court pointed out, proof "of professional negligence
requires expert testimony as to the standard of care in the relevant
community unless defendant's negligence is so clear that a trier of
fact may find professional negligence unassisted by expert
testimony." (17) The court stated that it was unable to reach the
conclusion proposed by the FDIC unassisted. "The court cannot say
whether the defendant . . . performed negligently based solely upon the
skeletal assertions by plaintiffs' counsel." (18) Noting that
the FDIC was "required to provide expert testimony which
demonstrates that defendant . . . negligently performed his appraisal
services," (19) and had not done so, the court granted the motion.

TIMING

Because of the possibility that a trial court will allow a
plaintiff additional time to secure an expert with which to oppose an
appraiser's motion to dismiss, the appraiser and his or her lawyer
should carefully consider when a motion to dismiss the case against the
appraiser should be filed. Such a motion should generally not be filed
early in the case because judges are often reluctant to dismiss claims
without providing plaintiffs an adequate opportunity to develop the
facts in support of their claims. (20)

Nor is it generally appropriate to wait until just before trial to
file such a motion. Although seemingly one of the more logical times,
many courts illogically view motions filed too close to trial as
harassment of the other side's trial preparation and deny them.
(21) Further, state statutes and loca rules that require parties to
designate experts will alert plaintiff's counsel to the previous
failure to designate an expert, prompting him or her to obtain one just
before trial. (22)

Careful counsel may allow several months to a year or more to
elapse between the time the lawsuit is first served and the time a
motion to dismiss is filed. During that time, the evidentiary record on
the case will solidify and the justification presented by the
plaintiff's counsel for not obtaining an expert will become less
persuasive. The appraiser's lawyer should file such a motion
immediately after the time alloted to conduct discovery of the other
party's case has expired. It can then be argued that no additional
time is available to take depositions and conduct discovery, and that
therefore all parties should be ready to present their evidence. Cost
considerations and other matters may dictate the filing of a motion at
an earlier time, however.

(2) As noted in "Liability of Real Estate Appraisers,"
several factors militate in favor of adding the appraiser as a
defendant. First, the defunct or undercapitalized status of the general
partner, holding company, or other defendant may make it desirable to
add as many other potentially solvent defendants as possible. Second,
appraisers are frequently insured for errors and omissions and their
liability policies provide an attractive source of funds to contribute
to any settlement or judgment. Finally, lawyers representing
disappointed investors, representatives of failed savings and loans such
as the FDIC, and other clients must be concerned about failing to add
any potentially solvent party to the list of party defendants lest they
in turn be accused of negligently allowing the potentially culpable insolvent defendant to escape liability and contribution.

(6) These are the basic claims that can be alleged against an
appraiser rising out of a deficient valuation. This certainly does not
stop plaintiff's counsel from alleging more exotic claims. See
Ahlswede v. Sentra Securities Corp., (U.S.D.C., S.C. Cal. 1987) (limited
partners alleged appraiser, along with other defendants, was liable for
damages for violations of Section 10(b) of the 1934 Securities and
Exchange Act and Rule 106-5, for conspiracy and negligent infliction of
emotional distress).

(8) Defendants in civil litigation always have an opportunity to
discover the facts and legal bases for the claims against them. See
Cal. Code Civ. Proc. [section] 2016 and Fed. Rules Civ. Proc. [sections]
26-37. An arbitration agreement may provide for a lesser number of such
opportunities unless they are provided for in the agreement.

(9) See Cal. Code Civ. Proc. # 437c (motions to dismiss or resolve
issues may be file within 60 days after defendant is served); Fed. Rules
Civ. Proc. 56.

(10) See citations in note 9. Failure to oppose such a motion may
be deemed consent by the plaintiff.

(11) See note 9.

(12) The plaintiff has the burden of proving the appraiser's
negligence at trial. Smith v. Lewis, 13 Cal. 3d 349, 356 (1975). In a
federal court, therefore, the appraiser need not prove that he or she
was not negligent and may prove that there is an absence of evidence to
support the non-moving party's case. Celotex v. Catrett, 477 U. S.
317, 325, 106 S. Ct. 2548 (1986); Fed. Rule Civ. Proc. 56(c).

(15) See transcript of hearing in FDIC v. Baker, November 5, 1990;
see also Opinion dated January 23, 1991 (Stotler, J.). The claim
against the appraiser was dismissed on July 15, 1991, as a result of the
FDIC's inability to authenticate the alleged appraisals. The FDIC
has appealed the dismissal.

(16) Opinion of Stotler, J., (noting that FDIC's lawyers had
claimed "it was reasonable to infer that the appraissals were
performed negligently" because of unsupported predictions of rental
increases and the absence of absorption studies).

(17) See Opinion, note 15.

(18) Ibid.

(19) Ibid.

(20) A judge will almost always allow a plaintiff additional time
to develop facts and if necessary, expert testimony with which to resist
a motion to dismiss filed too early in the case. See "Law and
Discovery Policy Manual," para. 212, noting that when a motion to
dismiss "is made within a short time after commencement of the
action, the court normally on request will allow the party against whom
the motion is made a reasonable time before deciding the motion."
The Law and Discovery Policy Manual governs law and motion proceeding in
the Los Angeles County Superior Court system.

(21) See "Law and Discovery Policy Manual," para. 212,
noting that "motions must be heard more than 30 days before
trial," and motions set close to this cutoff date "are
disfavored."

(22) Indeed, several local rules provide for status conferences
held just before the close of discovery or just after at which material
issues concerning how the trial will proceed are addressed. These
issues include whether the case will be a jury or non-jury trial, how
many days of expert testimony will be required, and how much time is
required for expert depositions. Most counsel will be alerted by these
conferences to previously ignored duties to designate experts.

Timothy J. Harris is a litigation partner with the Los Angeles law
firm of Charlston, Revich & Williams. He received a BA from the
University of Washington and a JD from the University of California, Los
Angeles.

COPYRIGHT 1992 The Appraisal Institute
No portion of this article can be reproduced without the express written permission from the copyright holder.